The Supreme Court shot down a law that would have allowed Puerto Rico to restructure approximately $20 billion of its debt in a 5-2 decision Monday.
The ruling stops the island, which faces a $72 billion debt burden, from re-enacting a law allowing it to restructure its public utilities debt – meaning debt restructuring will be left up to the U.S. Congress, the Associated Press reports.
“The term ‘State’ includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title,” the opinion of the court reads.
Justices Sonia Sotomayor and Ruth Bader Ginsburg filed a dissenting opinion, arguing the island needs bankruptcy rights to start fresh and get back on a path toward fiscal solvency
“The structure of the Code and the language and purpose of §903 demonstrate that Puerto Rico’s municipal debt restructuring law should not be read to be prohibited by Chapter 9,” Sotomayor wrote. “I respectfully dissent.”
The House passed a bill putting a federally-appointed control board in place to oversee Puerto Rico’s finances and the Senate is expected to act before the island’s $2 billion payment to its creditors due July 1.
The Obama administration has warned if nothing is done, the island could face a full-blown humanitarian crisis.
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